New mid­dle class is big and bank­able

The Star Early Edition - - OPINION&ANALYSIS - Ken­drick Sands

EUROMONITOR’S in­ter­na­tional wealth and in­come dis­tri­bu­tion model looks at 50 mar­kets through a mea­sure of in­come and ac­cu­mu­lated wealth. Our model fore­cast the growth of th­ese fac­tors to 2030 and has valu­able in­sight as to where con­sumers will exit poverty and en­ter the mid­dle class over the fore­cast pe­riod.

For con­sumer fi­nance, th­ese con­sumers that are re­cent ad­di­tions to the mid­dle class will rep­re­sent a size­able and bank­able pop­u­la­tion. Com­pa­nies that in­vest early and es­tab­lish brand loy­alty with th­ese con­sumers will very likely ben­e­fit over the fore­cast pe­riod.

Sig­nif­i­cant gains for Asia Pa­cific, China, In­dia and In­done­sia are all ex­pected to ex­pe­ri­ence a size­able re­duc­tion among con­sumers that earn less than $15 000 (R202 585) and have to­tal wealth of $30 000 (this is de­fined as the bot­tom seg­ment of both in­come and wealth in this sce­nario). The re­duc­tion from 2015 to 2030 is ex­pected to be the most sig­nif­i­cant in China with 470 mil­lion con­sumers ex­it­ing the in­come-wealth clas­si­fi­ca­tion, fol­lowed by In­dia and In­done­sia with 170 mil­lion and 40 mil­lion con­sumers, re­spec­tively.

A range of pol­icy and eco­nomic fac­tors con­trib­ute to the fore­cast, but ul­ti­mately mean the re­sult­ing ex­panded mid­dle class con­sumers will sig­nif­i­cantly in­crease the de­mand for fi­nan­cial prod­ucts and ser­vices. Many of the con­sumers that are cur­rently in the low­est in­come-wealth clas­si­fi­ca­tion would not utilise or have ac­cess to fi­nan­cial prod­ucts or ser­vices.

Ap­pox­i­mately 347 mil­lion and 86 mil­lion con­sumers in China and In­done­sia, re­spec­tively, over the age of 15 were con­sid­ered un­banked in 2016. This trans­lates to 31 per­cent of con­sumers over the age of 15 in China, and 45 per­cent of those in In­done­sia who do not utilise a singe fi­nan­cial prod­uct or ser­vice.


Al­though the cur­rent banked pop­u­la­tion rate re­flects con­sis­tent in­creases of the banked pop­u­la­tion over the last decade, the pace of adop­tion go­ing for­ward will likely be greater as in­come and to­tal wealth gains are re­alised in both mar­kets. From 2016 to 2021 China, In­dia and In­done­sia are ex­pected to have card pay­ment value com­pound an­nual growth rates of 6.4 per­cent, 13 per­cent and 5 per­cent re­spec­tively.

The growth of fi­nan­cial ser­vices will likely ben­e­fit the largest lo­cal fi­nan­cial in­sti­tu­tions or in­ter­na­tional fi­nan­cial in­sti­tu­tions that are able to se­cure the con­sumers be­fore their in­come in­creases.

In China, the China Con­struc­tion Bank, the In­dus­trial and Com­mer­cial Bank of China, the Agri­cul­tural Bank of China and the Bank of China ac­counted for a com­bined 52.9 per­cent of card pay­ment value in China in 2015.

In In­dia and In­done­sia in­ter­na­tional banks have a greater share of card pay­ment value and are in a bet­ter po­si­tion to ben­e­fit from the pro­jected rise in de­mand that such an in­crease among con­sumers would gen­er­ate. Cit­i­group cards ac­counted for 9.3 per­cent of card pay­ment value in In­dia in 2015 and 6.8 per­cent in In­done­sia.

The com­ing rise in in­come of con­sumers across Asia Pa­cific presents a sig­nif­i­cant op­por­tu­nity for fi­nan­cial in­sti­tu­tions, and in­deed com­pa­nies of all ver­ti­cals. The com­pa­nies that are able to de­velop brand recog­ni­tion and loy­alty early on with con­sumers that have in­come be­low $10 000 may be in a bet­ter po­si­tion to ben­e­fit from the tran­si­tion than those who wait. Ken­drick Sands is Euromonitor’s se­nior an­a­lyst for con­sumer fi­nance.

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